Sheep farmers flocking to carbon credits

Struggling farmers can earn $600 a hectare a year on unprofitable grazing land. Photo / Richard Robinson

New Zealand's sheep farmers are flocking to a Government carbon trading programme that pays more to plant trees than sell wool and mutton.

The system, begun in 2008 and the only one of its kind outside Europe, awards farmers credits sold to offset greenhouse gas emissions.

The project may earn them about $600 a hectare a year on land unprofitable for grazing animals, said David Evison, a senior lecturer at the University of Canterbury's New Zealand School of Forestry.

Forests planted for carbon credits may increase to 30,000ha a year compared with 3500ha last year, the Government estimates.

The system is a welcome alternative for sheep farmers who have struggled for decades from a combination of slumping wool prices, drought and competition for land from the dairy and lumber industries, says Neil Walker, a forester in the Taranaki region.

"If you're an industry in decline, you have to see what options are available," said Walker, who also heads the Taranaki Regional Council's policy and planning committee.

"There's an economic case to be made for converting hill-country sheep farms to forests."

Sheep have been in decline for decades and have fallen in number from a 1982 peak of 70 million to about 40 million, official data shows.

Carbon trading is embraced by some farmers and rejected by others as too harsh a change for New Zealand, the world's biggest sheep meat exporter last year.

The nation's carbon-trading project was expanded in July to require energy producers to pay for their emissions.

By 2015, the system will include agriculture, forcing farmers to pay for emissions their cows and sheep make through belching.

That, says Don Nicolson, president of Federated Farmers of New Zealand, is too big a burden on its 25,000 members. The group opposed the programme, particularly after it became clear the nation would adopt the policy largely alone.

Australia's Government shelved a carbon trading plan in April.

"We're the only national emissions trading scheme outside of Europe," said Nigel Brunel, head of futures trading at Auckland-based OM Financial, which acts as a broker for carbon trading.

"If at the end of 2012 we're the only country standing there, then we will give up."

Spot prices for carbon credits were $18.45 a metric tonne on August 16.

The market remains in limbo until more credits are available and the deadline for offsetting emissions comes closer, Brunel said.

Until December 2012, there's a transition period in which companies in the system have the option to pay a carbon tax on emissions capped at $25 a tonne, or buy carbon credits backed by forestry.

They also need to offset only one tonne of emissions for every two they produce.

"Demand will be constant and supply is likely to be lumpy and infrequent," Brunel said.

Even the Government says the programme will have little impact on global greenhouse gas emissions.

New Zealand ranks 51st in greenhouse gas emissions with 0.2 per cent of the global total, according to the United Nations.

The Government introduced carbon trading to enhance the country's green image, boost exports, attract tourists and increase influence in global climate talks, Prime Minister John Key said in June.

The difficulties for back-country sheep farms began when the Government deregulated New Zealand's economy in 1984, scrapping the subsidies that had incentivised farmers to convert marginal scrubland to pasture since the 1960s, said Edwyn Kight, a farmer on the east coast of the North Island.

Over the years, the converted land became more unprofitable as fertiliser prices rose when subsidies were removed, Kight said from his 3600ha Akitio Station.

He's planted 600ha of forest since carbon trading began and plans 800 more. He's keeping 1000ha for livestock.

Carbon has the potential to markedly alter the profitability of New Zealand's hill country, he said. "That land is not marginally economic to farm for sheep and cattle, it's totally uneconomic. There's a real opportunity for land use change here."

At Cambridge Forest & Native Nursery the emissions trading scheme is a significant reason for year-on-year sales growth of 35 per cent, owner Jonathan Sudano said. He declined to give revenue figures.

The company has already sold all of next year's supply of radiata pine saplings, a softwood used to make frames for houses.

Introduction of carbon trading incentives will add to an existing trend to convert pasture land for forest, driven by sales of lumber to China.

Since 1990, about 3.5 million ha, or 28 per cent, of land used for grazing sheep and beef has switched use. About a quarter went to dairy and the rest to forests, urban development and conservation, according to industry group Meat & Wool New Zealand.

Log exports from New Zealand to China more than doubled in the year ended March to 5.4 million cubic metres, driving a $300 million increase in log export earnings to $1.1 billion, official data shows.

Carbon trading makes planting forests even more appealing, the University of Canterbury's Evison said.

Instead of waiting for trees to grow before they can sell the timber, they're now paid annually for storing carbon.

"It turns forestry into a cash flow business," he said.

Not all farmers are happy with the trend. Federated Farmers' Nicolson estimates 20 per cent, or 2800 sheep and beef farms could be replaced by carbon forests, harming communities that rely on livestock farming for jobs as shearers, mechanics and vets.

He said farmers were being sold on the profit in carbon farming without understanding the risks, such as losing trees to fires or disease, or the Government canceling the programme.

"You can't blame farmers who've had their profitability tested from taking a punt on their marginal land.

"It comes with huge risk and that's not what's being talked about."

Many hill farmers are already struggling and rural depopulation from loss of jobs is already taking place, said Edwyn Kight.

"It hasn't happened because of forestry, it's happened because of economics," said Kight, who is a member of Federated Farmers.

For farmers such as Kight, whose sheep and cattle are part of the exports Key wants to protect, the trading scheme is a means to stay in business.

"You don't want it to be a call for the last one around to turn out the lights.

"That's what it was coming to."

- Bloomberg